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Under Review   /   Drakkar Energy Ltd. - Blacksteel Energy Inc.



Drakkar Energy Ltd. - Blacksteel Energy Inc.

Strategic Alternatives Process
Bid Deadline: May 21, 2020 12:00 PM
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OVERVIEW

Drakkar Energy Ltd. (“Drakkar”) and Blacksteel Energy Inc. (“Blacksteel”) (TSX-V: BEY) (collectively the “Companies”) have a combined 100% working interest (70% Drakkar, 30% Blacksteel) in an oil and natural gas asset in the Girouxville area of northwestern Alberta (the “Property”).  The Property is operated by Drakkar and is the sole asset of both Companies.
 
The Companies have engaged Sayer Energy Advisors to assist with a joint sales process whereby Drakkar and Blacksteel intend to both pursue a process to explore strategic alternatives.  The Companies are open to reviewing all alternatives, with potential outcomes to this process including, but not limited to, a sale or merger of the Companies or other form of business combination; a recapitalization or other form of strategic investment; or the sale of the working interests in the Property.
 
Recent production net to the Companies from the Property has averaged approximately 41 barrels of oil per day. 
 
As of April 4, 2020, Drakkar’s net deemed asset value associated with the Property was $2.2 million (deemed assets of $3,116,932 and deemed liabilities of $948,731), with an LMR ratio of 3.29.
 
Drakkar is a privately-held company with no staff or severance obligations, with all services being provided by contractors and no office lease obligation. 
 
Drakkar has estimated total tax pools of over $13.5 million as of June 30, 2019, including approximately $7.8 million in non-capital losses.  Additional corporate information relating to Drakkar will be provided to parties once a confidentiality agreement has been signed.
 
Blacksteel is a publicly-traded company with no staff or severance obligations, with all services being provided by contractors, no office lease obligation and it currently has a working capital deficiency of  approximately $1.8 million (which includes approximately $2.0 million of convertible debentures of which Blacksteel is currently pursuing a conversion to common shares or an extension of the term).
 
Blacksteel had estimated total tax pools of over $9.8 million as of April 30, 2019, including approximately $4.3 million in non-capital losses.


Overview Map Showing Location of the Divestiture Property

Blacksteel Corporate Overview

GIROUXVILLE

Township 75-76, Range 21 W5

At Girouxville, the Companies hold a combined 100% working interest (70% Drakkar, 30% Blacksteel) in 15 sections of land which have been proven to be productive for light oil from the Montney Formation.  The operator of the Property is Drakkar and is the sole asset of both Companies.  

The previous operator drilled six wells on the land at Girouxville.  One well has been converted to a water disposal well in the Cadotte Formation.  The Property was shut-in by the previous operator in January 2016 and some of the wells were reactivated in February 2017 by the Companies.  Current production net to the Companies is approximately 41 barrels of oil per day.


Group Plot of the Companies' Montney Oil Wells
Recent Production 41 bbl/d, 143 Mcf/d (flared)
Cumulative Production 257 Mbbl oil, 0.7 Bcf natural gas


The Companies hold a 100% working interest (70% Drakkar, 30% Blacksteel) in 15 sections of land in the Girouxville area, as shown on the following map.
 


The Property can be fully developed with additional horizontal oil wells, with potentially up to eight wells per section, consistent with the development in the pool to the east of the Property.  The Companies  also believe the Property is a candidate for further oil recovery through water flooding.
 
The Property is on trend with the adjacent Montney pool currently being developed by Long Run Exploration Ltd.  Long Run implemented a water flood pilot project with the conversion of three producing wells to water injection wells.  In 2016, the Long Run water flood project was described in the paper Girouxville East Montney Waterflood (SPE-180453-MS) which was published in the Society of Petroleum Engineers Journal.

 

Girouxville
Montney Oil & Natural Gas Pools


The following cross section shows up to 30 metres of net pay in the Montney Formation at Girouxville.
 

Montney Formation Cross Section


Core analysis on the well at 00/09-03-076-21W5/0 shows the presence of oil saturation in the Montney at Girouxville.


Drakkar Operated Well
00/09-03-076-21W5/0
Montney Formation Core Analysis


The Companies’ mapped the structure of the Montney Formation on the Property as shown on the following map.  Recent expiries are denoted in red.  As per the Alberta government’s recent announcement, upcoming expiries will be extended by one year upon approval of application.


Montney Formation Structure Map


The following isopach map shows the net porosity of the Montney Formation on the Property as mapped by the Companies.
 

Montney Formation Net Porosity Isopach Map


The following isopach map shows the net oil pay in the Montney Formation on the Property as mapped by the Companies.
 

Montney Formation Net Oil Pay Map

Girouxville Operations

Three of the Montney oil wells at Girouxville (09-02, 16-02 and 08-09) produce to a central battery which is located at 09-03-076-21W5.  The 00/16-02-076-21W5/2 well has recently gone down due to operational issues which the Companies are assessing.  The 00/08-09-076-21W5/2 well has produced intermittently and is currently shut-in.

The Companies converted the 00/08-02-076-21W5/2 well to a water disposal well in the Cadotte Formation.  The majority of solution gas is flared on site with some used in day to day operations.

The Companies do not have the capital required for development of the Property but have an initial five-year drilling plan for full exploitation of the Property which includes up to 30 wells.  The current pad sizes are large enough for up to eight wells.  The Companies have based the development locations on minimizing surface impact while optimizing position for horizontal locations and flowline tie-ins as well as future water injection.
 

Girouxville
Montney Development Locations


The first phase of planned capital expenditures would involve drilling up to two horizontal Montney wells and recompleting the 08-09 well for total capital expenditure of $4.6 to $6.1 million.  The minimum capital expenditure of $4.6 million assumes a tie-in to offset facilities for oil and emulsion processing, gas gathering and water disposal.  The maximum capital expenditure of $6.1 million assumes retaining control of oil processing and water disposal as well as investing an additional $1.5 million in battery upgrades and drilling a new salt water disposal well.
 
The Companies believe this would result in additional production at an initial production rate (IP30) of approximately 800 boe/d (65% oil). 
 
The second phase would be to follow up by drilling up to two additional horizontal Montney wells for total capital expenditure of approximately $3.6 million which the Companies believe would result in additional production at an IP30 rate of approximately 637 boe/d (65% oil). 
 
The offset operator has an extensive emulsion gathering system at its 13-04-076-20W5 battery.  The infrastructure includes processing capacity which is available at the 13-04 battery as well as a natural gas plant located to the north of the battery.  The Companies estimate a tie-in would cost approximately $600,000.

 


Additionally, as the Property is developed, the Companies see potential for gas-to-power generation from the Property as an alternative to traditional natural gas conservation. 
 
Additional information relating to the operations will be provided to parties that execute a Confidentiality Agreement.


Girouxville Seismic

The Companies do not have ownership in any seismic data on the lands at Girouxville.

Girouxville LMR as of April 4, 2020

As of April 4, 2020, Drakkar’s net deemed asset value was $2.2 million (deemed assets of $3,116,932 and deemed liabilities of $948,731), with an LMR ratio of 3.29.
 


Girouxville Marketing

The Companies have marketing arrangements in place with Fulcrum Energy Management Inc. and Trafigura Canada General Partnership at Girouxville.  Oil is primarily trucked from 09-03-076-21W5 and sold at nearby terminals south of Valleyview.

Girouxville Reserves

Drakkar (70% W.I.)


GLJ Petroleum Consultants Ltd. (“GLJ”) prepared an independent reserves evaluation of the Girouxville property as part of the Drakkar’s year-end reporting (the “Drakkar GLJ Report”).  The Drakkar GLJ Report is effective December 31, 2018 using GLJ’s January 1, 2019 forecast pricing.

GLJ estimates that, as of December 31, 2018, Drakkar’s 70% working interest in the Girouxville property contained remaining proved plus probable reserves of 1.1 million barrels of oil and natural gas liquids and 2.8 Bcf of natural gas (1.6 million boe) with an estimated net present value of $15.1 million using forecast pricing at a 10% discount.
 


Blacksteel (30% W.I.)
 
GLJ Petroleum Consultants Ltd. (“GLJ”) prepared an independent reserves evaluation of the Girouxville property as part of the Blacksteel’s year-end reporting (the “Blacksteel GLJ Report”).  The Blacksteel GLJ Report is effective April 30, 2019 using GLJ’s April 1, 2019 forecast pricing.
 
GLJ estimates that, as of April 30, 2019, Blacksteel’s 30% working interest in the Girouxville property contained remaining proved plus probable reserves of 486,000 barrels of oil and natural gas liquids and 1.2 Bcf of natural gas (690,000 boe) with an estimated net present value of $6.1 million using forecast pricing at a 10% discount.

 


Girouxville Well List

PROCESS & TIMELINE

Sayer Energy Advisors is accepting proposals relating to this process until 12:00 pm on Thursday, May 21, 2020.
 

Sayer Energy Advisors does not conduct a "second-round" bidding process; the intention is to attempt to conclude
transaction(s) with the party(ies) submitting the most acceptable proposal(s) at the conclusion of the  process.

Sayer Energy Advisors is accepting proposals from interested parties until
noon on Thursday May 21, 2020.


NOTE REGARDING A SAYER PROCESS

On each and every offering brochure generated by Sayer, you will note the sentence “Sayer Energy Advisors does not conduct a “second-round” bidding process; the intention is to attempt to conclude a sale of the Company with the party submitting the most acceptable proposal at the conclusion of the process.”  What this means is that Sayer will not go back to multiple parties at the same time after bids are received, asking them all for a second bid.  We determine which party submitted the most acceptable proposal and then we attempt to negotiate acceptable terms with that party in a “one-off” situation.

If the process involves a cash sale of a property or company and the party which submitted the most acceptable proposal has met our client’s threshold value, that offer will be accepted.  If this proposal does not meet our client’s threshold value, then we will advise that party that the offer is not quite what our client was expecting, and we will ask them to increase the offer.  If that offer is not acceptable to our client, we will then move down to the party which submitted the next most acceptable proposal and we will then work with that party to attempt to meet our client’s threshold value.

In the extremely rare circumstance where two or more parties submit virtually identical proposals, we will contact all  parties, we will advise them of this situation and we will ask them to submit a revised proposal.  Once these are received, we will work with the party which has submitted the most acceptable proposal.

CONFIDENTIALITY AGREEMENT

Parties wishing to receive a detailed Confidential Information Binder with detailed technical information relating to this opportunity should execute the Confidentiality Agreement and return one copy to Sayer Energy Advisors by courier, email (tpavic@sayeradvisors.com) or fax (403.266.4467).  

Included in the Confidential Information Binder is the following: summary land information, most recent net operations summary, the Blacksteel GLJ Report and Drakkar GLJ Report and other relevant technical information.  

Download the Drakkar Confidentiality Agreement 

Download the Blacksteel Confidentiality Agreement 

To schedule a time to visit the Data Room, which is situated at Sayer's office, please contact Tom Pavic, Ben Rye or Grazina Palmer at 403.266.6133.
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